Multinational Corporations - Expansion: 1925–1930

Not until the mid-1920s, when the international economy seemed to
stabilize, particularly in Europe, and the United States' own
economy was booming, did U.S. corporations start to make substantial
direct foreign investments. Encouraged by President Calvin Coolidge and
his fellow Republican Herbert Hoover, first in his capacity as
Coolidge's secretary of commerce and then as Coolidge's
successor in the White House, the largest U.S. firms began to invest
heavily in Europe, both in search of new markets and as a way of
protecting themselves against trade barriers. Such investments, usually in
the form of foreign subsidiaries, branches, or joint ventures, also fitted
well into the multidivisional, decentralized organizational structure
begun at General Motors (GM) under the leadership of Alfred Sloan but
adopted very quickly by other major industrial concerns.

Yet, as Sloan later wrote, the decision to invest overseas did not come
easily, nor was it perceived as inevitable. GM's executives, for
example, had to decide whether there was a market abroad for American cars
and, if so, which models were likely to fare the best. They also had to
determine whether to export entire cars from the United States, build
plants to assemble imported parts, or engage in the entire manufacturing
process overseas. If the latter, they then had to consider whether to buy
existing plants or build their own. Invariably, these decisions involved
such other considerations as the taxes and tariffs of host nations, the
state of existing facilities and dealerships abroad, and the desire of
foreign governments to protect jobs and national industries. In the case
of General Motors, the corporation almost bought the French carmaker
Citroën but decided against doing so, in large part because of the
French government's opposition to an American takeover of what it
considered a vital industry. GM did, however, buy the British firm
Vauxhall Motors Ltd. and the German carmaker Opel. Even more important, it
made a decision at the end of the 1920s to be an international
manufacturer seeking markets wherever they existed and to build the
industrial infrastructure necessary to penetrate and maintain them.

Although direct foreign investment as a percentage of the GNP remained
about the same in the 1920s as it did at the turn of the century (about 7
percent), what made the 1920s different from earlier decades were where
and what kinds of investment were being made. Investments in
manufacturing, which had lagged behind mining and agriculture, now vaulted
ahead of both. As it did so, direct investments in Europe almost doubled,
from approximately $700 million in 1920 to about $1.35 billion by 1929;
manufacturing and petroleum accounted for most of this increase.
Significantly, much of the new investment came from firms that previously
had not braved the waters of overseas markets. Businesses like Pet and
Carnation Milk had well-established brand names at home on which they
hoped to capitalize by joining together under the Webb-Pomerene Act to
open new plants and factories in France, Holland, and Germany in the
1920s.

Almost as dramatic as the increase in direct investments in manufacturing
abroad were those in petroleum, which increased from $604 million in 1919
to $1.34 billion by 1929. Although this included everything from the
exploration of petroleum to its production, refining, and distribution,
most of the increase was in exploration and production. Thanks to vast
increases in the production of oil in Venezuela, American direct
investments in petroleum in South America jumped from $113 million in 1919
to $512 million by 1929.

Even in the Middle East, which remained largely a British preserve, the
United States made important inroads. Fearful of an oil shortage after the
war and worried that the region might be shut to American interests, the
United States pressured the European powers to give a group of American
oil companies a 23 percent share of a consortium of British, French, and
Dutch oil producers. Among these companies were Standard Oil of New Jersey
(now Exxon) and Standard Oil of New York (now Mobil), which later bought
out the other American firms. The consortium became the Iraq Petroleum
Company (IPC), whose purpose was to explore and develop mineral rights in
the former Ottoman Empire.

As a result of developments like these, total American investment in
foreign petroleum increased from $604 million in 1919 to $1.34 billion
dollars in 1929. By that year petroleum had become the second-largest
sector in terms of American direct foreign investment, with mining ($1.23
billion) and agriculture ($986 million) falling to second and third
places.